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AM Best warns reinsurance faces discipline test amid record capital

AM Best said non life reinsurance has benefited from strong capitalization and favorable earnings since 2023, but intensifying competition in property and uncertainty in casualty pricing could drive a new soft market cycle.

Reported · Written up by our desk · Reinsurance

A new AM Best report warned that the global reinsurance market is at a “critical inflection point,” as record capital built up since 2023 increases competitive pressure, particularly in property coverage.

AM Best said the non life reinsurance segment continues to benefit from strong capitalisation, favorable earnings generation, and supportive market conditions. It also noted that, unlike previous hard markets, much of the capital accumulation has stayed within existing reinsurers rather than coming from a wave of new entrants.

The rating agency argued that with reinsurers holding multiple ways to deploy capital, there may be less need to pursue growth solely through single-channel underwriting. Still, AM Best raised the question of whether underwriting discipline will hold or whether “irrational competition” could emerge, potentially setting up another traditional soft market cycle.

Casualty reinsurance is a key strategic concern, AM Best said. Some firms are leaning into casualty growth opportunities supported by enhanced rates, while others are taking a more cautious stance due to uncertainty around social inflation, litigation funding, larger jury awards, and worsening legal environments, AM Best added. The report also said AM Best expects favorable earnings profiles for the non life reinsurance market unless there is an outsized catastrophe event.

Dan Hofmeister of AM Best highlighted that casualty exposures can develop over many years, meaning decisions made now may not be fully understood until well into the next decade, and the central issue remains whether reinsurers can preserve the discipline that produced recent profitable results.

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